C4 - Using Cash Budgets

Question 1

What is sensitivity analysis?

Answer 1

A technique which helps determine the assumptions that are critical and which have less impact within a company.

Question 2

Calculating closing adjustments:

Opening receivables
Closing receivables
Sales

Answer 2

Opening receivables + sales - closing receivables

Question 3

Calculating closing adjustments:

Opening payables
Closing payables
Purchases
Purchase returns

Answer 3

Opening payables + purchases - purchase returns - closing payables

Question 4

Calculating closing adjustments

Opening accrual
Closing accrual
Expense

Answer 4

Opening accrual + expense - closing accrual

Question 5

Calculating closing adjustments

Opening prepayment
Closing prepayment
Expense

Answer 5

Expense + closing prepayment - opening prepayment

Question 6

Annual equivalent interest formula?

Early settlement or no

Answer 6

[ d / (100-d) ] x [ 365 days / (N - D) ] x 100%

d = settlement discount 
N = standard settlement days 
D = early settlement days

Question 7

What happens if annual equivalent discount is higher than over facility interest??
(Accepting early settlement from suppliers)

Answer 7

Take early settlement discount offer

Question 8

What happens if overdraft facility interest is higher than annual equivalent interest?
(Accepting early settlement from suppliers)

Answer 8

Use overdraft facility as not worth paying early

Question 9

What’s happens if the overdraft facility is higher than annual equivalent interest rate when offering early settlement to customers??

Answer 9

Offer early settlement to customers instead of overdraft facility

Question 10

What’s happens if annual equivalent interest rate is higher than overdraft facility when offering early settlement to customers??

Answer 10

Decline early settlement offer and accept overdraft facility